An employee walks past monitors displaying stock prices at Indonesia Stock Exchange (IDX) in Jakarta on Friday (23/3). The Jakarta Composite Index closed down 0.69 percent, or 43.48 points, at the level of 6,210.7 points.
JAKARTA, KOMPAS -- Banking consolidation is the most relevant narrative concept in any economic condition. However, the fact remains that consolidation has never been easy due to numerous factors, including the perceived availability of huge opportunities for banks.
In the current economic conditions marked by high interest rates and increasingly limited liquidity, for instance, banks may consider the possibility of consolidation. “This can even be an opportunity to speed up banking consolidation. Thus far, banking consolidation happens mostly due to poor economic conditions,” Atma Jaya Catholic University lecturer Prasetyantoko told Kompas on Tuesday (22/1/2019).
In its Indonesian Banking Architecture (API) report released on Jan. 9, 2004, Bank Indonesia (BI) requires banks to have minimum capital of Rp 100 billion (US$7.03 million). The API also has a target for Indonesia to have two or three international banks with capital of more than Rp 50 trillion in the next 10 to 15 years. Other targets include that Indonesia have three to five national banks with capital between Rp 10 trillion and Rp 50 trillion, 30 to 50 banks catering to certain business segments with capital of between Rp 100 billion and Rp 10 trillion and rural banks (BPRs).
Financial Services Authority (OJK) data showed that Indonesia had 115 conventional banks and sharia banks as of November 2018.
With regard to the API, which was followed up with a 2006 BI policy package to push for API implementation, banks are actually able to consolidate organically. However, banks usually only consider consolidating under pressures, such as in funding. “Currently, we can push for consolidation of state-owned banks, at best,” Prasetyantoko said.
With respect to the possibility of establishing a state financial holding firm, State-Owned Enterprises Minister Rini Soemarno said she hoped it could be achieved in April this year. However, she said her ministry would need to coordinate with the OJK.
State-Owned Enterprises Ministry deputy of financial services, surveys and consultants Gatot Trihargo said he believed that the establishment of a state financial holding firm would increase banks’ efficiency and competitiveness in the global market, as well as strengthen financial inclusion.
In the state financial holding firm master plan, state financial services firm PT Danareksa would serve as the holding company. State lenders Bank Mandiri, BNI, BRI and BTN, as well as state-owned fund manager PT Bahana, state pawn shop PT Pegadaian, state financing firm PT Permodalan Nasional Madani (PNM) and interbank switching firm PT Jalin Pembayaran Nusantara (JPN), will be its subsidiaries.
Contributions
OJK banking supervisory division head Hery Kristiyana said he hoped banks in the BUKU I and II categories would increase their contribution to the national economy. Despite having their own segments, their contribution remains limited. “The role of big banks in the BUKU III and BUKU IV categories is becoming increasingly concrete in terms of improving small banks’ contribution through consolidation,” Heru said.
Banks in BUKU I have capital of less than Rp 1 trillion. Banks in BUKU II category have capital of between Rp 1 trillion and Rp 5 trillion. Banks in BUKU III category have capital of between Rp 5 trillion and Rp 30 trillion. Banks in BUKU IV category have capital of more than Rp 30 trillion.
To push for banking consolidation, the OJK has referred to OJK Regulation No. 39/POJK.03/2017 on single ownership of Indonesian banks. The regulation stipulates that banks can only serve as a major shareholder in another bank. Managing two banks is allowed as long as the two have different management principles, such as conventional and sharia.
Heru said that, in order to adhere to the regulation, big banks often forced smaller ones to merge in to one. A prominent example is the plan to merge PT Bank Danamon and PT Bank Nusantara Parahyangan by major shareholder MUFG Bank Ltd.
A Bank Danamon press statement said that the bank would accept the merger. (DIM/FER/IDR)
